For Workhorse Group (NASDAQ:WKHS), the wait continues. All eyes remain on the potential contract with the United States Postal Service, a win (or loss) that will have a huge impact on WKHS stock.
Indeed, it already has. WKHS soared from $2 to $30 on the back of optimism that Workhorse would get at least a portion of the award. An article at Trucks.com reported yet another delay in the award, which originally was thought to occur all the way back in 2018. WKHS stock plunged 23% after-hours on the report.
To be fair, the delay isn’t necessarily a surprise. Again, it’s not the first time the USPS deadline has been pushed back. Nor is the U.S. federal government known for its speed.
Meanwhile, more thinly-traded after-hours sessions often lead to outsized moves. I wouldn’t be surprised to see the after-hours plunge reverse, at least somewhat, in the regular session.
But the delay gets to a core problem with WKHS stock at the moment: there simply isn’t enough here beyond the USPS deal. The entire bull case rests on a win, which explains some of the dramatic volatility in the stock in recent months.
Even before Tuesday’s news, that problem was drawn into sharp relief. The USPS is going to do what it does, when it does it. Workhorse needs to start providing some good news of its own.
The Contract Delay
From one perspective, the contract delay is much ado about nothing. Again, the deal has been delayed before. What’s different in 2020 relative to 2019 is that Workhorse has plenty of cash to wait out the USPS.
Thanks to sales of stock and convertible bonds, Workhorse as of early November had over $260 million in cash. Year-to-date operating loss is about $25 million, giving the company plenty of cushion.
But from another perspective, the delay is a concern. After all, WKHS bulls have seen the current President as being in their corner. Workhorse is one of the three finalists for the award, with one being Turkish firm Karsan. Ostensibly, it would make more sense for the USPS, under a Trump Administration, to choose a domestic company.
Meanwhile, Trump has toured the Ohio plant of Lordstown Motors (NASDAQ:RIDE), of which Workhorse owns 10%. It would seem Workhorse at the least has a better chance of a larger win under a Trump presidency than under President-elect Joe Biden.
Personally, I’m not sure that’s necessarily the case. Biden too is focusing on “Made in America.” Trump’s brokering of the deal by which Lordstown purchased a shuttered General Motors (NYSE:GM) plant doesn’t itself mean he will push for a Workhorse win.
Net/net, the delay doesn’t break the WKHS story. I’m honestly not sure it changes it all that much.
WKHS Stock Needs More
The problem is that I wasn’t all that impressed with the bull case to begin with. WKHS stock has absolutely soared since the first half of this year despite the fact that the story here hasn’t changed all that much. To at least some extent, the stock has been brought up by the same electric vehicle optimism that lifted Tesla (NASDAQ:TSLA), Nio (NYSE:NIO), and so many other EV names.
It hasn’t done all that much on its own. That problem continued in the third quarter. Workhorse generated revenue of just $565,000. Gross margin was negative, to the tune of almost 400%.
This still is an early-stage company, so the numbers perhaps aren’t that alarming. What is alarming is the outlook.
Workhorse said it was going to deliver 300 to 400 vehicles this year, mostly in the fourth quarter. It walked that guidance back in the Q3 release, citing a Covid-19 outbreak at its plant as well as delays at its battery supplier.
It’s hard to see why the supplier would struggle to deliver such a relatively small order, which raises questions about the procurement strategy of a company that is more of an assembler than a true manufacturer.
The 2021 outlook doesn’t look much better. Workhorse plans to deliver 1,800 vehicles. But that total includes vehicles that are slipping into 2021. And it’s still below the original guidance of 2,000 vehicles given for calendar year 2018.
Riding the Razor’s Edge
What’s especially disappointing is that the recent results don’t help Workhorse in its bid to get a piece of the USPS deal. If Workhorse was garnering wins elsewhere, it likely would drive more confidence from the Postal Service as to its capabilities. A recent purchase order for 500 vehicles from a distributor is a nice start, but it’s not enough.
Essentially, it seems like Workhorse at this point needs outside help. At least some investors were hoping that help would come from the Trump Administration. With that avenue closed, it’s not a surprise that those investors are more nervous. And so the waiting game continues.
On the date of publication, Vince Martin did not have (either directly or indirectly) any positions in the securities mentioned in this article.
